USDA GAIN: Livestock and Products

USDA GAIN: Mexico Livestock and Products Annual 2013

Cattle inventories continue falling but new programs and a focus on improving genetics and management practices may help the industry rebound. Red meat prices remain the driving factor affecting consumption which has led to reduced beef and an upswing in pork demand. Mexico’s industry and the government are looking to expand their own exports while the United States was able to export over $1 billion in pork and $725 million in beef to Mexico in 2012 with growth expected in 2013 and 2014.

Commodities:

Animal Numbers, Cattle Meat, Beef and Veal

Production:

The Post 2014 Mexican beef production forecast is 1.795 million metric tons (MMT) carcass weight equivalent (CWE), slightly greater than the 2013 estimate of 1.775 MMT, as feeding practices and genetic improvements are slowly aiding weight gains and carcass yields. Mexican industry members are looking for animals with better feed conversion to place into northern Mexico’s intensive production systems as a means to lower overall feeding costs. To this end, newer genetics from Angus, Limousin, Simmental, and Charolois and their crossbreeding F1’s are being introduced into the arid and semi-arid regions around Jalisco, Sinaloa, and Nayarit. Currently, these breeds along with Hereford are dominant in the region. The presence of Indobrasil, Brahman, Guzerat, Gyr and other rustic (i.e., native and climate adapted) breeds are pervasive in central and southern Mexico.

Post’s 2013 production estimate is lowered from the 2013 USDA official estimate as consumers’ willingness to pay for beef given higher production costs is limiting expansion. Post’s 2012 production estimates were revised marginally upward based on new official information from SENASICA which is in charge of Mexico’s federally inspected (i.e., TIF) beef slaughter facilities.

Will Calf Suppliers Program Help Overcome Low Cattle Inventories?

The 2012 drought and attractive beef prices enticed producers to sell not only steers and heifers but breeding cattle, as well. Also, Mexico’s low breeding rate, currently averaging 1 calf every 2 years, along with increased calf exports has strained production systems and reduced domestic slaughter from traditional levels for the remainder of 2013 and, likely, the beginning of 2014.

As such, Mexico’s beef sector is looking to improve the production and profitability of calf suppliers. Breeders, cattle associations, meat packing companies and financing operations have embarked on an ambitious program to help develop these suppliers. The provisions of the program include advice, training, and technical support for breeding companies so as to improve the breeding rate and supply feeding operations with more calves. The program is designed to operate under contract as added assurance for all parties involved in the marketing channel.

End of Drought in Sight? Should Contribute to Cattle Inventory Recovery

Dry and moderate drought conditions persist, but Mexico’s National Water Commission is advising that the 2013 rainy season will offer relief from the drought experienced over the past three years. Rains should help increase grain yields over the initial 2013 spring-summer crop cycle production forecast which is harvested between November 2013 to January 2014. This, in turn, should encourage cattle feeding. Moreover, pasture lands are returning to almost normal conditions in central and southern Mexico which should allow for cattle to return to these lands for grazing. The end result is that slaughter and carcass weights should move upward in 2013 and are expected to move even higher in 2014.

Additionally, the cattle sector is optimistic that seasonal and normal rains will permit cattle inventory recovery in the coming years. Nevertheless, Post forecasts that inventories will continue falling in the short-term through 2013 and 2014.

The Future of Live Cattle Exports Clouded by a Number of Factors

Post forecasts live cattle exports in 2014 to be 1.15 million head. This is lower than 2013 estimates of 1.2 million head which is a significant reduction over 2012 figure of 1.539 million head. The reduction of live cattle exports is due to a number of factors; namely perceptions that not enough heifers are remaining on hand for breeding purposes. In addition, a lack of steers throughout Mexico has forced domestic feedlot operations to bid competitively with foreign buyers to keep cattle in Mexico. If higher prices to producers persist, this should contribute to improvements in retaining breeding cattle and spur calf production in the mid to long-term.

Although Mexican data for the period of January to May 2013 shows live bovine exports at only 435 thousand, Post estimates that export figures could reach 1.2 million as exports customarily ramp up at the end of each year. As previously reported, the new export pen in the State of Nuevo Leon at the Colombia crossing point could contribute to increasing Mexican live cattle exports to the United States as the greater geographic accessibility of the pens could lower transaction costs. This will be feasible, however, only if the suppliers program succeeds in providing the platform to increase breeding rates to repopulate the domestic herd. Additional uncertainty surrounding the growth of live cattle exports are due to the plans of a large Mexican feedlot and slaughter operation to build an additional facility in northern Mexico which could give increased competition to live cattle trade when the facility is fully operational.

Consumption:

The Post 2014 total domestic beef consumption forecast is 1.81 MMT which is slightly higher than Post’s 2013 beef consumption estimate of 1.795 MMT. Higher beef prices and the difference in prices between beef and other proteins are leading to reduced per capita consumption. In addition, imports are occupying a smaller share of total consumption as over the past 10 years, Mexican producers have been able to improve food quality and safety and get their product in front of consumers as there has been growth in the variety of retail and commercial establishments available to them. The Post 2012 beef consumption estimate is marginally increased to 1.836 MMT from USDA official figures due to recently updated official data.

Per Capita Consumption Figures Falling

Post’s 2014 forecast and 2013 estimated consumption levels suggest that per capita consumption will be falling and rest between 15 and 16 kilograms per person. Industry sources echo this sentiment and site that higher production (and product costs) and reduced disposable income in mid and mid-low income households has led to shifting consumption patterns. Sources suggest that pork and poultry consumption and processed products (e.g., sausages with fillers) increasingly has been substituted for beef in recent years.

Trade:

Post forecasts Mexico’s 2014 beef imports at 235,000 MT CWE and has reduced its import estimate for 2013 to 225,000 MT. High prices, limited supply, and changing consumption patterns along with higher weights for Mexican domestic cattle has reduced the need for imported beef muscle cuts. The closure of Russia, an important and growing market for Mexican beef exports, also may have been a contributing factor in reducing import demand as more beef became available on the domestic market. Post’s 2012 import figure of 215,000 MT is unchanged from USDA’s figure and based on official data.

The improved quality, food safety, and sophistication of Mexican beef operations have opened doors for increased Mexican beef exports over the past several years. Post’s 2014 Mexican beef export forecast is 220,000 MT and its 2013 estimate is 205,000 MT. Mexican beef exports had been growing sharply in previous years, but the loss of the Russian market with no foreseeable way forward has been a blow to expanded exports. This and other strategic opportunities are encouraging the Mexican industry to try and cultivate other markets for these cuts as well as others.

The Asian Market: An Opportunity for Mexican Beef Producers and Exporters

Given that an increasing share of domestic production is processed and distributed with certifications and superior quality standards, Mexican industry and government officials are continuing to look for expanded or new trade opportunities in the United States, Japan, Angola, Panama and several Asian countries. Primary cuts exported to the U.S. are rib eye, chuck roll, T-bone steaks, and tenderloins. Industry members in the State of Chihuahua are targeting Asian markets as a destination for their “rib” style beef cuts. Another new and unexplored market for Mexican beef exporters is Indonesia which recently opened up and is allowing 4 TIF establishments located in Mexicali, Baja California, to export fine beef cuts. Additionally, in 2013, exports to Hong Kong have been growing at significant rates and show promise as a new market for Mexican beef industry members.

The, image, below shows the “export map” of Mexican beef exported to the different world markets based on primary cuts.

Added-Value Exports on Target

The Mexican beef industry continues promoting the need to develop added-value product exports to strengthen all aspects of the beef marketing channel. Mexico has started the transition to trade boxed beef in larger volumes. Thus, the sector keeps encouraging members to improve processing activity efficiencies and better meet foreign market sanitary requirements.

Policy:

As previously reported, Mexican meat sector representatives report that they feel threatened by Trans Pacific Partnership (TPP) negotiations and that the domestic meat sector could be in jeopardy as other TPP negotiating members may be able to offer less expensive beef products for supply into Mexico. They acknowledge that countries like Chile, Singapore, Peru, Malaysia and Vietnam could offer opportunities for Mexico but other countries such as Australia, New Zealand, and Canada represent a challenge to them domestically or in these other TPP/third-country markets.

Live Cattle Exporters Don’t Think COOL is Cool While Packers Report Price Discounts Are Long Standing

Several Mexican boxed beef exporters report that the May 24, 2013, USDA Final Rule on Country of Origin Labeling (COOL) has not impacted boxed beef exports as their product is considered “Product of Mexico”. According to industry contacts, price discounts for Mexican beef in the U.S. are largely a commercial issue and have been long-standing. On the other hand, Mexican live cattle shippers and industry members have been very vocal about their dislike of the measure and allege that it has caused economic harm to their industry as Mexican cattle slaughtered in the United States must be marketed as such.

Marketing:

The National Association of TIF Establishments (ANETIF) expects to launch a campaign to promote the responsible consumption of meat in Mexico. The goal is to encourage consumers to purchase TIFcertified meat in main consumption centers throughout the country as opposed to meat products processed or sold in wet markets.

NOTE: Mexico is a large market for beef offal and non-skeletal muscle cuts like skirt steak. Those commodities and the trade volumes are not included in the tables below which are based on CWE calculations for harmonized tariff system codes 0201, 0202, 021050, and 160250.